Hiring and Retaining a Core Team

A strong team of core employees is a critical requirement for building a successful startup. Indeed, venture capitalist Mark Suster once said that as much as 70% of his decision to invest in a company is based on the quality of the early team. The core of this team does not have to be a large group of people, but they should be dependable for the long-term i.e. those who will stick with you when times get rough and are able to take different roles as the needs to your organization evolve. This article will explain why employing the right people is important, how to hire them, and how to retain them.

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Businesses that fail to identify employees with the right skills for a long-term collaboration waste their time and money – resources that are scarce in every early-stage business. The departure of a key team member can be fatal to group morale and client relationships. While all businesses have to fire employees occasionally, you can minimize staff turnover by screening during recruitment for the right mix of intelligence, soft skills and a personality that matches your business culture. After you have hired the right talent, to retain it, treat employees with respect by listening to their concerns, communicating assertively and rewarding good performance.

Cost of Poor Hires

Bad hiring decisions cost you in many ways

Companies that hire mismatched, emotionally immature or otherwise inadequate employees risk high staff turnover rates. High turnover is one of the most insidious costs for a startup; it hurts the organization in multiple ways:

  1. Cost of hiring a replacement
  2. Lost productivity as the new person will not be immediately efficient at the new job
  3. Disengagement and lost productivity in other employees due to departure of colleagues
  4. Impact on customer service and errors by to the loss of organizational knowledge lost with the departed employee
  5. Accumulated training cost invested in the departed employee
  6. Cost of training a new person
  7. Cultural and morale impact

Financial cost

When an employee quits or is fired, the resources invested into recruitment, training, and payroll are lost. Worse still, your business will in all probability have to fork out these costs a second time in order to hire and train a new candidate. If the departing employee is a senior member of your team, he or she might be in a position to negotiate a severance package at your expense. Turnover seems to vary by wage and role of employee.

A study by the Center for American Progress found that the cost to replace a highly educated executive can be 213% of the person’s annual salary.

At a stage when money is already tight, these costs can prove very painful for a startup.

Time cost

Most startups are in a race against time to find, perfect and execute a sustainable business model. Every hour spent advertising jobs, interviewing candidates and training them on the job is an hour that could be spent on the core activities of the business. When an employee leaves, the time you have invested into recruiting, training and nurturing them is wasted. If the employee joins a competitor, it will be doubly costly for you as you would have effectively paid for the hiring and training costs of your adversary. Your organization will also waste time since the new employee will not be as productive on the job initially. It could take months until the new hire is competent in the role.

Morale cost

The departure of a key team member can sap the momentum of a startup. It can sow doubts about the direction and viability of the business in the remaining employees. This is particularly so if the reasons for the departure are not explained to the staff. If the person has a significant role in the organization, several group projects may be put entirely on hold. All of these actions will hurt the organization’s momentum which is so crucial for group morale.

Reputation cost

If your salesperson changes frequently, it will be hard to do business credibly in industries that rely heavily on ongoing relationships with clients. Additionally, in today’s world of transparency, it’s easier than ever for jobseekers to spot a company that has a poor working environment. High turnover can be visible on sites like Glassdoor.com. It can rapidly make or break a business’ reputation with employees and customers. If people keep quitting because the middle manager you hired is abusive, word will spread, and the good talent will steer clear of your business.

Your Core Team

Select the inner core team of your startup very carefully

Difference between a core team member and a typical employee

Someone who makes a good employee might not necessarily be cut out to work in the core team of a startup. Entrepreneurs should be able to identify this distinction and hire appropriately. In general, the earlier the hire, the more entrepreneurial the employee needs to be. He or she should be prepared to play multiple roles within the growing business. For example, a limited budget might mean that the lead developer has to do some project management or sales every now and then. To find persons who can see what to do and take the initiative to do it, even if it is outside their area of expertise, business owners should look for evidence of being a self-starter when hiring core team members. Prior experience as a founder or evidence of off the beaten path experiences are good predictors of this trait.

Early hires also need to be more tolerant of the stress and ambiguity that is a part of life in an organisation in search of a repeatable business model. Startups are prone to failure and often need to pivot; your business will not survive if your core team does not have the resilience to weather the hard times. Sometimes this means that core team members need to have savings or a part-time job to reduce the financial strain on both employee and early-stage business.

By the time that the company reaches 25+ employees, it is likely to have a more steady revenue stream and better-defined departments, so business owners should prioritise domain expertise over creativity, emotional intelligence and stress tolerance when making hiring decisions. This is not to say that these soft skills should not be a consideration when hiring an employee; the emotional demands on core team members are simply higher. Both employees and early hires should be smarter than you in some area and willing to demonstrate this by contradicting you when appropriate.

Members of a typical core team

A core team of 5 introverted developers who all hate talking to customers will, in general, be less successful than a team whose members have complementary skills and personalities. Founders should take this into account and ensure their core team includes the following roles. Note that in many organizations, a single person may play more than one of the following roles.

  1. The creative is able to combine seemingly unrelated concepts to create new ideas, products, and services in a way that would not occur to the typical employee. Constantly scanning their environment for new information that might help them innovate, they typically work as designers, product managers, and top executives.
  2. The executor is the person who implements the creative’s big-picture ideas, taking consistent action to turn them into a reality. The executor typically has a high level of skill in an area such as engineering, content writing or coding, as well as the discipline and follow through required to be consistently productive.
  3. The charismatic is an extrovert who passionately evangelises about the product, filling early users with excitement at being part of something new. With superior people skills and the ability to size people up quickly, they often work in sales, marketing or business development.
  4. The carer has high levels of empathy and wants to make sure that the needs of people around them are met. They shine in customer service, executive assistance, and marketing support.

How to hire a great team?

Know who you’re looking for

Before you start advertising for the position, think not only about the tasks the new hire will have to perform, but also the type of person you want to work with. Whether your current team vibe caters primarily to idealistic hipster graduates, or retired ex-McKinsey partners, or something in between, new employees will have to fit into your culture. Consequently, their values should match both their position (e.g. a CFO should generally be frugal with money) and the overall values of the company. Include this information is the advertisement for the job.

Once you know the type of person you are looking for, your expectations should be clearly communicated to all applicants to avoid disappointment on both sides. In particular, employees should know how many hours they have to work, how much they will be paid and when, which stock options are available, and what their main responsibilities are on the job.

Assess talent carefully

After you’ve reviewed the candidate’s resume, skills and character, as well as interviewed them personally, consider asking your co-founder or another senior staff member to interview the applicant as well. A second opinion can be useful in making a hiring decision; sometimes your lead developer will be better placed to judge the effectiveness of your potential Android developer than you are. In this particular example, it would also be foolhardy to hire the new coder if he or she did not get along well personally with the project lead. After the interviews, follow up with the candidate in a timely fashion to avoid looking unprofessional or disrespectful – whatever the outcome of your decision.

All employees should have some sort of proven domain expertise. One good way to assess this is to have the new hire complete a task for you before joining the team, such as designing a logo or solving a quick coding problem on the spot. Another way is to look through their employment history; someone who has built a company from scratch and sold it is likely to have expert knowledge of business development.

You should check references for the shortlisted candidates. Ask open-ended questions of references to assess both domain expertise and soft skills. Hiring someone who has a habit of questioning everything and a track record of increasing sales by 100% is a very different prospect to someone who has job-hopped for 3 years and left their last employer on bad terms. The best reference is from someone you already know and trust; therefore, you should consider implementing referral programs to incentivise current employees to recruit from their networks. When you interview the candidates, look for can-do attitude, general intelligence, optimism and good communication skills; these skills are very valuable in every employee.

Mind the Mechanics of hiring

Once a suitable candidate has been found, he or she should be welcomed into the fold with a contract and professional offer letter. Some companies will also require new employees to sign non-compete agreements and IP assignment agreements; draw up standard contracts and use them consistently for all new hires. As your business expands, it will be necessary to create an HR handbook explaining company policies on such matters as dress code, office rules, and perks. Once your business reaches the necessary size, consider assigning most of the recruitment and onboarding processes to a dedicated HR professional.

How to retain a great team?

In most cases, the longer an employee stays with an organization, the more valuable she becomes. In other words, long employment creates value in and of itself for an organization through accumulated institutional knowledge, training, and high productivity. Therefore, the objective of your retention policies should be to attract the “right people” and move them up the value curve through the following:

  1. Attractive compensation
  2. A good job, fit with the skills and interests of the employee
  3. Opportunities for career advancement and growth
  4. Pleasant and professional work environment
  5. Provide a respectful working environment

Intelligent people with healthy self-esteem will not stay at a company that does not treat them with respect. This means that all communication should be professional and assertive but always non-violent; any aggression or passive-aggression should be nipped in the bud immediately. Criticism should be constructive and specific, rather than personal verbal attacks. Do not treat your employees as pawns on a chessboard. While work and play should generally be kept distinct from each other. Rather than adopting a top-down, authoritarian management style, encourage employees to speak up if they have creative ideas or concerns, and listen actively in both cases.

Additionally, consider group activities like days out or even simple trips to the pub to create a team spirit. Many German startups invest in table football tables, while Ticketmaster is famous in the London startup scene for having a slide in their office!

Set Clear Targets and Incentivise employees to meet them

All employees should be given clear targets to work towards and guidelines for evaluating their performance. Goals should be specific, measurable, attainable, realistic and timely (SMART). They should be based on objective, easily measurable metrics such as revenue, profit or the number of new clients acquired within a certain timeframe. Avoid overly complex formula for measuring success, keep them clean and simple. Provide informal feedback regularly so that the employees are not surprised at the end about their performance. Conduct at least one formal interviews on an annual basis. If an employee meets their targets, applaud them by complimenting them publicly and provide monetary rewards. In this regard, it is prudent to allocate a certain proportion of company profits to an employee rewards pool.

When necessary, terminate firmly but respectfully

If targets are not met, hold a private meeting with the employee to discuss what can be done to rectify the situation. Resist the urge to blame and criticise; seek instead to understand the cause of the problem. If you have done your due diligence in the hiring stage, your employee will have good soft skills and will be able to communicate the problem clearly; it might just be a case of insufficient subject knowledge in one specific area. Such problems can often be resolved through additional training, especially if you have someone else in your core team with expertise in the relevant domain.

However, if the problem is related to the employee’s personality, or you expected more than they are willing to provide, it might be better to cut your losses and let them go. Personality issues are much harder to fix than a lack of subject knowledge. In the event that you terminate an employee, be mindful of the relevant employment legislation in your country. Follow the law diligently and adopt an assertive yet professional communication style during the termination.

Conclusion

Employees are one of the most important and valuable assets for any business. High turnover, particularly within your core team, can be extremely expensive and damaging for a business. Treating co-workers with dignity and respect from the moment they send you their CV to their last day at the office is the best way to create an attractive work environment. As a business owner, this means that it’s imperative to constantly be evaluating your relationship skills to improve the way you listen, communicate, read people and deal with conflict. If you can hire and retain good talent, it is an investment which will pay for itself many times over.

TABLE OF CONTENTS

  1. Cost of Poor Hires
  2. Your Core Team
  3. How to Hire a Great Team?
  4. How to Retain a Great Team?
  5. Conclusion

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Additional Resources

For general topics on how to plan and grow your startup, see our Startup Mentor section. For specific details of how to launch and manage your startup in Singapore, see our Launch in Singapore section.